Platforms and firm capabilities : a study of emerging global value chains

This paper discusses globalization’s impact on production and distribution systems in emerging economies. On one hand, globalization has resulted in an increasing number of multinational corporations to adopt a platform strategy for their customers in emerging markets. On the other hand, developing countries have witnessed the integration of an increasing number of traditional marketplaces into a powerful distribution system, characterized as a specialized market system. Consequently, an unique industrial organization has developed in emerging economies, regarded as emerging global value chains (EGVCs). They comprise a large number of small firms together with a small number of large platform providers and display the "market" type general governance patterns. Firms in EGVCs are more likely to realize functional upgrading and grow into strong lead firms.

Assessment of FDI impact on Thailand's production sectors : implications for investment promotion activities

This paper examines the overall and sectoral economic impact of foreign direct investment (FDI) on the Thai economy using the economic data from 2005-2013. In assessing the overall economic impact, it is found that FDI has contributed positively to Thailand's economic growth. However, when analyzing the sectoral details, the empirical results indicate that FDI has a varying impact on the productive sectors in Thailand. Out of the 9 sub-sectors covered by this study, 5 sub-sectors (manufacturing, construction, financial, wholesale, retail trade, and agriculture) show strong statistically-significant positive effects of FDI on the relevant sector's value-added output. Based on these findings, it is suggested that policy-makers, including the Board of Investment, should aim to promote FDI with special consideration of the sectoral impact that would enable Thailand's FDI promotion policies to be more productive and beneficial for the Thai economy.

FDI inflows and outflows, intellectual property rights, and productivity growth

Using panel data of 57 countries during the period of 1995-2012, this study investigates the impact of intellectual property rights (IPR) processes on productivity growth. The IPR processes are decomposed into three stages, innovation process, commercialization process, and IPR protection process. Our results suggest that better IPR protection is directly associated with productivity improvement only in developed economies. In addition, the contribution of IPR processes on growth through foreign direct investment (FDI) appears to be very limited. Only FDI inflows in developed countries which help to create a better innovative capability lead to a higher growth. And in connection with FDI outflows, only IPR protection and commercialization processes are proven to improve productivity in the case of developing countries, particularly when the country acts as the investing country.

Firm-level impacts of natural disasters on production networks : evidence from a flood in Thailand

In this paper, we explore the firm-level impacts of flooding in Thailand in 2011, specifically those on the procurement patterns at Japanese affiliates in Thailand. Our findings are as follow. First, the damaged small firms are more likely to lower their local procurement share, particularly the share of procurement from other Japanese-owned firms in Thailand. Second, damaged young firms and damaged old firms are more likely to raise the shares of imports from Japan and China, respectively. Third, there are no impacts on imports from ASEAN and other countries. These findings are useful for uncovering how multinational firms adjust their production networks before and after natural disasters.

Did Japanese direct investment in Korea suppress indigenous industrialization in the 1930s? : evidence from country-level factory entry patterns

Foreign direct investment (FDI) can deliver both positive and negative spillovers to the local economy. Negative effects such as crowding-out or entry-barrier effects might outweigh the positive ones when the technological gap between foreign and local firms is significant. This paper examines the impact of Japanese direct investment into Korea under colonization in the 1930s on the entry of Korean-owned factories. By using the census of manufacturing factories in Korea, we exploit variations in the share of Japanese factories and their entry rates across counties within the same subsectors. We find that within a subsector, entry rates of Korean factories were higher in counties with higher presence and entry of Japanese factories. Positive correlations are also found between subsectors. The results imply that Japanese direct investment did not suppress the entry of Korean factories and that FDI could exert positive entry spillovers on indigenous firms, even at a very early stage of industrialization.

Estimating the effect of chemical safety standards on firm performance in Malaysia and Vietnam

This paper uses firm-level data to examine the impact of chemical safety regulations imposed by importing countries such as RoHS and REACH on the production costs and export performance of firms in Malaysia and Vietnam. We find that in addition to the initial setup costs for compliance, EU RoHS and REACH implementation causes firms to incur additional variable production costs by requiring additional labor and capital expenditures of around 12% of the variable costs, respectively. We also find that compliance with RoHS and REACH significantly increases the probability of export. Furthermore, we find that compliance with EU RoHS and REACH helps firms to penetrate into a greater variety of countries. Also, we find that multinational enterprises and firms participating in global value chains generally exhibit better export performance and their costs rise less steeply.

Competition between firms in developing and developed countries

We analyze competition in emerging markets between firms in developing and developed countries from the viewpoint of the boundaries of the firm. Although indigenous firms generally face a disadvantage in technology compared with foreign firms, they have an advantage in marketing as local firms. Moreover, they have opportunities to leave weaker fields to independent specialized firms and use lower wages. On the other hand, foreign firms also have their own advantages and disadvantages for growth. Therefore, entry conditions for indigenous firms can vary greatly depending on the situation. We classify these conditions into eight cases by developing a model and showing each boundary choice for indigenous firms.

Theory and empirics of Markusen type multinationals

Research on multinational firms’ activity has been conducted widely since late 1980s. The literature is differentiated into three types: horizontal FDI, vertical FDI, and three-country FDI, represented by export platform FDI. There are other methods of differentiation of the literature by approach, for example, the pure theory approach represented by Krugman and Melitz and the numerical simulation approach represented by Markusen. This paper surveys Markusen type literature by firm type. There is little literature focused on intermediate goods trade, although intermediate goods trade is considered to be strongly related to the production patterns of MNEs. In this paper, we introduce a model to explicitly treat intermediate goods trade and present simulation analysis for empirical estimation.

Is FTA/EPA effective for a developing country to attract FDI? : simulation analysis based on an extended knowledge-capital model

To prepare an answer to the question of how a developing country can attract FDI, this paper explored the factors and policies that may help bring FDI into a developing country by utilizing an extended version of the knowledge-capital model. With a special focus on the effects of FTAs/EPAs between market countries and developing countries, simulations with the model revealed the following: (1) Although FTA/EPA generally ends to increase FDI to a developing country, the possibility of improving welfare through increased demand for skilled and unskilled labor becomes higher as the size of the country declines; (2) Because the additional implementation of cost-saving policies to reduce firm-type/trade-link specific fixed costs ends to depreciate the price of skilled labor by saving its input, a developing country, which is extremely scarce in skilled labor, is better off avoiding the additional option; (3) If a country hopes to enjoy larger welfare gains with EPA, efforts to increase skilled labor in the country, such as investing in education, may be beneficial.

The impact of foreign firms on industrial productivity : evidence from Japan

With a newly constructed dataset on foreign firms in Japan for the period 1995-2008 from firm-level surveys, this paper estimates the impact of foreign firms on industrial productivity at the regional level. A Bayesian-model averaging approach is taken to account for model uncertainty resulting from various linkages between foreign firms and domestic industries. The results show that the foreign firms may contribute to industrial efficiency directly through their above-average productivity and indirectly through positive spillovers in intra-industry and local backward linkages. Forward linkages with foreign firms may have a negative impact on industrial productivity. However, these impacts depend on the nationality and entry mode of foreign investors. Aggregating foreign firms may mask their distinctive impacts on productivity.

Do international flights promote FDI? : the role of face-to-face communication

Air transportation facilitates face-to-face interactions across borders for the spatial expansion of manufacturing production. I investigate the impact of international flights on FDI entry by Japanese firms. I find that FDI entry significantly increases with the weekly frequency of flights from Japan, and the positive impact increases with a proxy for an intensity of face-to-face communication between the parent firm and foreign affiliate. The results are robust to estimation methods, additional control variables, and definitions of face-to-face communication. Thus, the results suggest that flights encourage FDI entry through a reduction in face-to-face communication costs.

Stability of complementarity between Japanese FDI and import of intermediate goods : agglomeration effects and parent-firm heterogeneity

This paper examines the duration of intermediate goods imports and its determinants for Japanese affiliates in China. Our estimations, using a unique parent-affiliate-transaction matched panel dataset for a discrete-time hazard model over the 2000–2006 period, reveal that products with a higher upstreamness index, differentiated goods, and goods traded under processing trade are less likely to be substituted with local procurement. Firms located in more agglomerated regions with more foreign affiliates tend to shorten the duration of imports from the home country. For parent-firm characteristics, multinational enterprises that have many foreign affiliates or longer foreign production experience import intermediate goods for a longer duration.